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Policy Paper the Case for Uniform Loot Box Regulation: a New Classification Typology and Reform Agenda

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Policy Paper the Case for Uniform Loot Box Regulation: a New Classification Typology and Reform Agenda Journal of Gambling Issues http://igi.camh.net/doi/pdf/10.4309/jgi.2021.46.15 Volume 46, February 2021 DOI: http://dx.doi.org/10.4309/jgi.2021.46.15 policy paper The Case for Uniform Loot Box Regulation: A New Classification Typology and Reform Agenda Stephanie Derrington,1 Shaun Star,2,3 & Sarah J. Kelly1 1 UQ Business School, University of Queensland, Brisbane, Queensland, Australia 2 Jindal Global Law School, Sonipat, India 3 TC Beirne School of Law, The University of Queensland, Brisbane, Queensland Australia Abstract The recent exponential increase in the presence of loot boxes and other forms of microtransactions in online games, together with the consequential development of a ‘‘token economy,’’ have created regulatory challenges around the world. The similarities between loot boxes and traditional forms of gambling give rise to serious and long-term psychological and financial risks, particularly among a largely minor, vulnerable audience. Regulators must, therefore, decide whether loot boxes and microtransactions should be addressed in the same manner as traditional gambling activities. Recognizing that the legal definition of gambling is a policy matter for different legislatures, this paper proposes a new classification framework for loot boxes and microtransactions that could be adopted as a guide by regulators and gaming publishers operating in the global, hyper-connected landscape of online gaming. The framework is designed to assist policy makers to achieve consumer welfare goals while also not unduly restricting the ability of adult consumers to make informed decisions as to when they participate in gambling-like activities or inappropriately interfering with the legitimate commercial endeavors of game developers. This paper advances nascent commentary in relation to the growing integration of microtransactions and loot boxes in the structure and content of video games and outlines a reform agenda informed by regulatory global responses to the issue. Keywords: video games, esports, loot boxes, microtransactions, regulation, governance Résumé La récente augmentation exponentielle des coffres à butin et d’autres formes de microtransactions qui sont intégrées aux jeux en ligne et favorisent une ) économie de jetons * a donné lieu à des défis réglementaires dans le monde entier. Les similarités 302 THE CASE FOR UNIFORM LOOT BOX REGULATION entre les coffres à butin et les formes traditionnelles de jeux de hasard ont entraîné de graves risques psychologiques et financiers à long terme, particulièrement chez un public en grande partie mineur et vulnérable. Les organismes de réglementation doivent donc décider si les coffres à butin et les microtransactions devraient être abordés de la même fac¸on que les activités liées aux jeux de hasard traditionnels. Cet article reconnaît que la définition juridique des jeux de hasard est une question de politique relevant de différentes assemblées législatives, et propose pour les coffres à butin et les microtransactions un nouveau cadre de classification que pourraient adopter à titre de guide les organismes de réglementation et les distributeurs de jeux vidéo qui exercent leurs activités dans le contexte mondial hyperbranché des jeux en ligne. Ce cadre vise à aider les décideurs à atteindre des objectifs en matière de bien- être des consommateurs tout en ne restreignant pas indûment la capacité des consommateurs adultes à prendre des décisions éclairées concernant leur participa- tion à des activités de type jeux de hasard, et en ne nuisant pas de manière inappropriée aux entreprises commerciales légitimes des développeurs de jeux. Cet article enrichit le discours naissant sur l’intégration croissante de microtransactions et de coffres à butin à la structure et au contenu des jeux vidéo, et décrit un programme de réforme éclairé par la réaction mondiale à la question sur le plan de la réglementation. Introduction In 2020, a French lawsuit was filed against Electronic Arts (EA) alleging that its FIFA Ultimate Team game is wrongly classified as an online video game rather than a form of gambling (Usher, 2020). Lawyers for the claimant have stated: ‘‘We believe that a gambling game has been integrated into this video game because buying packs is nothing more than a bet. It is the logic of a casino that has entered their homes’’ (Usher, 2020). The claimant was said to have spent USD$600 on in-game card packs between September 2019 and February 2020 (Usher, 2020). The packs, which were an example of loot boxes, may be purchased within the game for in-game or ‘‘real world’’ currency (Usher, 2020). The claimant’s experience, which he indicated has resulted in him falling behind on rental payments (Usher, 2020), was not unique, and demonstrated the risks of loot boxes and other in-game microtransactions (see, for example, Abarbanel, 2018; Clark et al., 2012; King & Delfabbro, 2016, 2018, 2019; Li et al., 2019). ‘‘Microtransactions’’ is accepted as an umbrella term for in-game transactions and purchases through micropayments (King & Delfabbro, 2019; McCaffrey, 2019). Microtransactions deliver a range of content and services to players including ‘‘story extensionsy additional play time, levels, new maps, virtual currency, weapons, armor, characters, or cosmetic items to customize the player’s character or items’’ (Schwiddeseen & Karius, 2014, p. 18). Cosmetic items obtained through 303 THE CASE FOR UNIFORM LOOT BOX REGULATION microtransactions are commonly referred to as ‘‘skins’’ and generally do not confer any in-game advantage (McCaffrey, 2019; Schwiddessen & Karius, 2018). Con- versely, loot boxes, which are often purchased through microtransactions, may deliver both significant in-game advantages, such as the weapons and characters sometimes found in in Fortnite's llama pinatas (see, for example, Epic Games, 2020), and less valuable prizes, including skins and other cosmetic items (McCaffrey, 2019). Schwiddessen and Karius (2018) define loot boxes (which are also known as loot crates or prize crates) as a consumable virtual item which can be redeemed to receive a randomized selection of further virtual items, ranging from simple customization options for a player’s game character, to game-changing equipment such as weapons, armor, virtual currency, additional skills, and even completely new or exclusive charactersy. Loot boxes can be differentiated in two categories: Those drop- ping cosmetic items (‘‘skins’’) and those generating items relevant for gameplay progress (p. 18; see also Interactive Games and Entertainment Association, 2018). Loot boxes are one of the most controversial types of microtransactions found in online games, predominantly because of the randomness with which players win valuable prizes and the psychological impacts of the business model behind the mechanism. As McCaffrey (2019) has explained, the high probability of receiving duplicate and low-value prizes incentivizes players to continue purchasing loot boxes in an effort to win more valuable or useful prizes. The exciting loot box environment, which often features lights and sounds, also makes the act of purchasing loot boxes exciting and inviting. The randomness of loot boxes’ content, the potential to win game-changing items, and the experience of the psychological thrills of anticipation and winning, all of which exploit the same psychological traits and financial risks of traditional gamb- ling, are said to contribute to excessive playing behaviors and psychological over- investment in video games (Abarbanel 2018; Clark et al., 2012; King & Delfabbro, 2016, 2018, 2019; Li et al., 2019; Macey & Hamari, 2018). The addictive nature of loot boxes has not come about by accident but rather is the result of the deliberate introduction of predatory monetization schemes into video games (King & Delfabbro, 2018, 2019; O’Malley, 2020). Indeed, many developers now rely on loot boxes and other microtransactions for a substantial part of their net revenue. EA, for example, made 28% of its net revenue in the 2019 fiscal year from its Ultimate Team service line (Electronic Arts, 2019). Loot boxes are a feature of many of the most commercially successful games including Star Wars Battlefront II, Overwatch, Fortress II, Mass Effect: Andromeda, Forza Motorsport 7, and Counter- Strike (Griffiths, 2018) and it is predicted that by 2022, the global annual spend on loot boxes and skins will be USD$50 billion (Juniper Research, 2018). The growth of the online competitive gaming sector has been particularly strong during the recent COVID-19 pandemic as people around the world turn to video games for simulated competition and to fill the void left by the lack of live sport. Hence the importance of 304 THE CASE FOR UNIFORM LOOT BOX REGULATION the issue of exposure and access to loot boxes in many games is critical in the post- COVID landscape. The commerciality of loot boxes presents a particular challenge for lawmakers and regulators who must balance the competing interests of consumers, particularly children, and commercial entities, such as developers and publishers. It is thus unsurprising that no consensus currently exists as to how loot boxes and other microtransactions should be regulated. On the one hand, certain jurisdictions (e.g., the United Kingdom, New Zealand, Canada, France, the Netherlands, Belgium, India, and arguably Sweden and Poland) focus on whether loot boxes and other microtransactions meet the legal definition of gambling. Generally this turns on whether items obtained in loot boxes are transferable for money or money’s
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